Income Protection or Permanent Health Insurance (PHI) is a protection policy offered by life assurance companies that pays out a regular income should the individual insured suffer a loss of earned income by being unable to work due to sickness or disability lasting longer than the ‘deferred period’ under the policy, i.e. the initial period of inability to work due to sickness or disability before the benefit becomes payable.
It is important to note that there must be a loss of income, in order for a PHI benefit to become payable. It is not enough just to be sick.
The term ‘permanent’ in Permanent Health Insurance relates to the fact that, once the life company has issued the contract, it cannot cancel it, no matter how many times or for how long there are claims made under the policy, provided the policyholder continues to pay the premiums due.
The benefit is payable for as long as the individual is suffering from ‘disability’ beyond the deferred period, which usually means being unable though sickness or disability to follow the individual’s own occupation or any other occupation for which he or she is reasonably suited or trained.
PHI benefit is payable until the earlier of:
- The life assured returns to work.
- The life assured is deemed fit to return to work
- The benefit cessation age. PHI policies usually have a fixed age at which payment of the benefit ceases in any event, usually referred to as the ‘benefit cessation age’. Life companies may offer a choice, say 55, 60 or 65. Obviously the older the benefit cessation age, the higher the premium cost, as the benefit, if it becomes payable, could be payable for a longer period of time.
- The life assured retires.
PHI cover protects the consumer from a loss of income arising from sickness or disability causing the insured to be unable to work for a prolonged period.